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Home»Finance»The Importance of the EU-Philippines Trade Deal
Finance

The Importance of the EU-Philippines Trade Deal

December 12, 2024No Comments8 Mins Read
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The Importance of the EU-Philippines Trade Deal
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In March 2024, the European Union and the Philippines took a significant step forward by agreeing to resume bilateral negotiations focused on finalizing a long-awaited free trade agreement (FTA). This development marks a crucial moment, as talks had been stalled since 2017, during the presidency of Rodrigo Duterte, whose war on drugs campaign had drawn international scrutiny and prompted a re-evaluation of the Philippines’ standing in global trade. 

The renewed interest from the EU underscores a positive shift under the new administration of President Ferdinand Marcos Jr., elected in 2022. His government has expressed a strong commitment to enhancing diplomatic and economic relations, and reopening the FTA talks is an important step to reinforce trade ties with the European Union. 

Despite the geographic distance, the EU and the Indo-Pacific are deeply interconnected, bound by mutual economic interests and shared security concerns. As a strategic player in the Indo-Pacific, the Philippines has become increasingly significant to the EU’s efforts to diversify its trade networks and reduce exposure to political and economic risks. This FTA, therefore, serves as a crucial component of the EU’s broader strategy to de-risk and build resilience through partnerships across the Indo-Pacific. These shifting geopolitical dynamics underscore how the EU’s pursuit of stability and the Philippines’ efforts to further rebuild its international standing are aligning, fueling progress toward an ambitious, comprehensive trade agreement.

The Philippines’ Economic Potential

The EU-Philippines FTA holds immense potential for strengthening bilateral ties, marking a new phase in their economic relationship. With the historic visit of European Commission President Ursula von der Leyen to the Philippines in July 2023, both sides signaled strong political will to resume the long-stalled negotiations. Official negotiations resumed in the week of October 14, 2024, with the next round expected in February 2025. This will be followed by the third round in June 2025, and the fourth one in October 2025. 

Celebrating six decades of diplomatic relations in 2024, the EU and the Philippines are poised to further deepen trade and investment ties, especially in sectors vital for a sustainable future. The trade deal is expected to increase bilateral trade up to 6 billion euros. 

From the Philippines’ perspective, the resumption of the EU-PH FTA negotiations is seen as timely and necessary. Marcos has emphasized that the country’s recent economic reforms – such as the liberalization of the telecommunications, transport, and renewable energy sectors – create favorable conditions for concluding the agreement. With the EU Generalized Scheme of Preferences Plus (GSP+) set to expire in 2027, the Philippines urgently needs to secure long-term economic benefits through a free trade agreement. Since 2014, the Philippines has benefited from GSP+, which allows 6,274 products to enter the EU tariff-free. While an extension has been proposed, the Philippines risks losing these benefits as it is projected to reach upper-middle-income status in the next few years. 

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While the clock is ticking on the GSP+, the Philippines will elect a new president in 2028. Concluding the EU-Philippines FTA before 2028 is thus important from both political and economic perspectives to secure long-term trade benefits and enhance market access. Finalizing the agreement within the current administration would help maintain the current positive momentum and provide a stable framework for sustained economic cooperation and mutual benefits.

The FTA offers numerous opportunities for the Philippines, including increased market access for agriculture, garments, minerals, and digital trade. The local garments industry, for example, could benefit significantly in terms of job creation and export growth. The Confederation of Wearable Exporters of the Philippines estimates that the sector could gain between 120,000 and 250,000 new jobs within the first two years of FTA implementation, alongside $600 million in export value over the first two to three years. Additionally, the booming $50-billion information technology–business process outsourcing (IT-BPO) industry also stands to gain from enhanced access to EU markets. Furthermore, the agreement provides opportunities for the Philippines to expand its market share in Europe, which currently stands at less than 10 percent.

However, challenges remain. Concerns over data exclusivity, intellectual property rights, and environmental standards were major sticking points in previous negotiations. Addressing these issues will be vital to reaching a comprehensive and balanced agreement. At the same time, the Philippines has demonstrated progress in key areas, particularly in human rights, including efforts to reform its “war on drugs” policies to prioritize prevention and rehabilitation. Additionally, the cases of journalist Maria Ressa and former Senator Leila de Lima have seen encouraging developments. Given the EU’s strong emphasis on human rights within its trade agenda, such improvements will be integral to the FTA discussions. 

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Ultimately, the EU-PH FTA offers not only economic benefits but also shared progress in sustainability, labor rights, and environmental preservation. 

The EU Perspective: Focusing on the Green Economy Partnership With Manila 

The European Union remains a global economic heavyweight, despite a slight decline in its share of world trade. As a leader in foreign direct investment (FDI), representing 37.1 percent of global FDI stocks, the EU needs to capitalize on its economic strength more effectively. One key area of interest for Brussels in the Asia-Pacific region is the Philippine market – the fifth-largest economy in ASEAN, with a GDP of $437 billion and a population of 115 million. In 2022, trade in goods between the EU and the Philippines exceeded 18.4 billion euros ($19.3 billion), while services trade reached 4.7 billion euros in 2021. 

The Philippines’ vast reserves of critical raw materials, such as nickel, copper, and chromite, are crucial for the EU’s green and digital transitions. The Philippines holds immense mining potential, ranking fifth globally, with approximately 30 percent of its land area – around 9 million hectares – identified as having significant mineral reserves. Richly endowed with metallic resources, the country has the capacity to become one of the world’s top 10 mining powers. It ranks third in gold, fourth in copper, fifth in nickel, and sixth in chromite on a per-unit-area basis.

Another tool to boost the Philippine economy is Global Gateway. Especially after some prominent projects under China’s Belt and Road Initiative have been cancelled in the past, the Global Gateway could be seen as a logical replacement. The 60-million euro EU-Philippines Financing Agreement for the Green Economy Program, signed at the Global Gateway Forum in Brussels last year, marks a crucial step in the Philippines’ shift toward sustainability. This initiative aims to foster a circular economy, reduce waste, improve water management, and promote renewable energy. While commendable, the real challenge lies in ensuring a meaningful impact on the ground, where collaboration between national and local governments, private sectors, and European partners will be key. 

The EU’s commitment, in collaboration with contributions from member states such as Germany and France, aligns with the Philippines’ efforts to meet its ambitious climate goals, fostering shared progress toward sustainability. Furthermore, the trade and sustainable development (TSD) chapter of such a bilateral deal, covering standards on environmental protection, can support and improve the implementation of sustainability-related measures for green and just economic growth. Beyond environmental benefits, this agreement signals a broader EU-Philippines cooperation, which could open doors to further strengthening economic ties and fortifying the Philippines’ role in the region.

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The Road Ahead: The Promise of the Free Trade Agreement

While the road ahead may be complex, the renewed political will and readiness to negotiate from both the European Union and the Philippines indicate that a free trade agreement is within reach. This agreement has the potential to significantly boost trade and investment flows while enhancing cooperation in key areas such as technology, sustainability, and innovation, thereby solidifying the Philippines as a strategic partner for the EU in the region. 

As both parties look toward the future, the FTA not only offers a platform for strengthening economic collaboration but also aligns their shared interests in sustainability and regional stability. This renewed engagement also has a geopolitical dimension, reflecting Manila’s efforts to diversify its foreign relations following its military agreement with Washington. The EU views the Philippines as a vital partner in the Indo-Pacific, even as it aims to expand strategic ties through similar trade agreements with India, Indonesia, and Thailand. Concluding an FTA will ultimately foster growth and resilience for both parties in an increasingly interconnected global economy.

The outlook within the EU is mixed: While there is recognition that more trade deals are necessary, a protectionist reflex persists among some member states. Trade is often discussed alongside “economic security,” signaling a less committed stance on free trade. However, the EU faces the dual challenge of investing in its own security while enhancing economic competitiveness to reduce critical dependencies. In trade policy, progress has been relatively slow, with only a few agreements made in the last legislative term (e.g., Vietnam, New Zealand, and Chile). More action is needed and the agreement with Manila can be a useful and necessary message for the new European Commission that they are willing to work more closely with like-minded states and are a trustworthy partner.

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